Bài giảng 7. Inclusive Growth (Chỉ có bản tiếng Anh)

▪ Create inclusive markets – give people freedom to pursue the vocations in life that best suit their talents but also provide a level of playing field that give them the. opportunity t[r]

▪ How does globalization facilitate (or deter) national economic growth?

▪ What is the implication of regionalization of economy?

▪ Do geographic location of countries matter in development?

▪ What is inclusive growth?

North-South Divide

▪ Classification of countries by the level of

development (socio-economic) The term “ the

Third World ”

▪ Separation of world economy into ‘ core ’ and

‘ periphery ’ – The core in Northern hemisphere

(25% of world population) controls 80% of world

income, 90% of manufacturing How this

discrepancy happen?

▪ Structure (trade of raw material and finalized

products) – Dependency theory

▪ Global migration (technology transfer) theory

▪ Geopolitics, culture, etc.

“Poor countries have poorly educated populations, and possess outdated or nonexistent machinery and

technology.” – but why?

Does Geography Matter?

▪ Yes or No? – (fact) High-income regions are almost entirely concentrated in a few

temperate zones, half of the world’s GDP is produced by 15% of the world’s

population, 54% of the world’s GDP is produced by countries occupying just 10% of

the world’s land area

▪ Geography matters? Yes! Geography explains cross-country differences in prosperity

▪ Geography hypothesis – “the geography, climate, and ecology of a society’s location

shape both its technology and the incentives of its inhabitants

✓ Climate – determine work efforts, incentives, even productivity

✓ Geography – determine technology a society develop, especially in agriculture

the problem with this hypothesis?

Globalization and Its Impact

▪ Question: Is globalization good for development (in particular, for developing countries?)

▪ Some people say yes – look at Chinese economy (GDP growth 10% for 30 years), growing

India (recent GDP growth more than 8%)

▪ Closer integration of the countries of the world – result of lower communication and

transportation costs | Reduction in manmade barriers to movements of goods and services,

people, capital, knowledge, etc.

▪Developing countries benefited: a) access to markets; b) access to technology

▪ Do you agree? – What about Latin American countries (former best students of

liberalization, experiencing decline in income, increasing poverty) | Africa (declining income)

| former communist countries (declining income, increasing poverty)

Joseph Stiglitz

▪ Is the globalized world getting better? Yes or No

▪ Trade? (equal? Beneficial to developing countries?) – e.g African countries been left without

education, technology and resources to take advantage of new opportunities Projected benefit went

to developed countries.

▪ Has Washington Consensus policies been working? – e.g Latin American countries ’ capital market liberalization exposed them to huge volatility

▪ Has environment in developing countries been saved? – sustainable development No compensation

▪ Has global knowledge been fairly transferred to developing countries Widened knowledge gap

▪ Has the responsibility for global warming fairly distributed? Area of global injustice

Voices of developing countries are not heard

Unfair global governance

One Belt One Road? 一带一路

▪ So, what happened to OBOR project? – Xi Jinping’s foreign policy (global infrastructure development, 2013 - ).

▪ “Bid to enhance regional connectivity and embrace a bright future” like the Silk Road → create a unified large market, cultural exchange and integration → accelerate economic growth.

▪ Requires long-term capital investment

▪ More than 100 countries supported this project (mostly non-Western countries).

▪Many concerns: ecological issues, debts, ‘neo-colonialism,’ etc.

Poverty: Institutional Hypothesis

▪ Two main contenders to explain the

fundamental causes of cross-national

differences in prosperity (Banerjee et al.):

Why some places don’t have better

condition?

▪ Against geography hypothesis: Banerjee

et al (2006) argues that “ institutions ” are

more important Geography hypothesis

emphasizes natural forces.

▪ Institutional hypothesis argues: “ some

societies are organized in a way that

upholds the rule of law, encourage

investment of all kinds, facilitate

broad-based participation by citizens, and

supports market transactions ”

Enforcement

of property rights

Constraints

on the actions of elites, politicians

Some degrees of equal opportunity

Provide incentives

to invest and take part in economic life

Prevent corruption and unfair

practices

Equality for broader segment

of the society

Institutions of Private Property

▪ Nobel Prize Laureate Douglas North

also supported ‘institutional

hypothesis’

▪ Unfortunately – institutions of private

properties do not exist in many

societies

▪ Extraction of resources by one (or a

few) group at the expense of the rest

(extractive institution)

Belgian colony, Congo Caribbean

slave plantation

Latin America Forced labor

Other European settled in Australia, NZ, US, etc.

Placed significant constraints on elites, politicians, etc.

Extractive vs Inclusive Institutions

▪ Countries differ in their economic success because of their different institutions – the rules influencing how the economy works, and the incentives that motivate people

▪ Over the several years, worldwide consensus → the need for a more ‘inclusive growth.’

▪ Acemoglu and Robinson theorized that there are two institutions: 1) extractive

institutions in which a small group of individuals do their best to exploit the rest of the population, and 2) inclusive institutions in which many people are included in the

process of governing

Inclusive

- Increased income for elites

- Increasing inequality (Brenner and Pastor, 2015)

- Urban-rural inequality (e.g China, Gini Coefficient 0.47)

- Top 1% share increased

- Demands for inclusive growth

- Growth pattern as well as pace is important (ADB, 2007)

- Institutionalized exclusion of the poor

Is Meritocracy Bad?

▪ Meritocracy has become a leading social ideal in modern world →

“the rewards of the life – money, power, jobs, university admission – should be distributed according to skill and effort

▪ Singapore’s success? – based on meritocracy (LKY)

▪ Increasing dissatisfaction with meritocratic idea

Inclusive Economic Institutions

▪ Create inclusive markets – give people freedom to pursue the vocations in life that best suit their talents but also provide a level of playing field that give them the

opportunity to do so (e.g.) North Koreans, Colonial Peru & Bolivia

▪ Technology and Education – Inclusive economic institutions also pave the way for the engines of prosperity

Economic

institutions

in poor

countries

Less incentive for parents to send their children to

school

Less incentive for the government

to build and support schools

Inadequate education

The Inclusive Development Index

Growth and development Inclusion

Intergeneratio -nal equity

Is Vietnam inclusive?

▪ IDI scores are based on a 1-7 scale: 1= worst, and 7=best

▪ Vietnam’s IDI ranking is 33, while GDP per capital ranking is 52 – Green color indicates that IDI is

advancing

Question about Inclusive Growth

▪ The extractive and inclusive categories are intuitive and useful – but explaining the entire cases and history of humankind by this dichotomy is difficult

▪ (e.g.) Rome – prospered for centuries under the extractive institutions of the empire.

▪ Other examples – South Korea, Taiwan, Chile, and China (good economic results)

▪ North Korea vs South Korea

▪ Northern Italy vs Southern Italy (Robert D Putnam)

▪ Zimbabwe – transition from extractive colonial institutions → catastrophic economic collapse

Not Easy Prescription

▪ Acemoglu & Robinson – Politically inclusive institutions (certain level of centrality and diversity of political power) + economically inclusive institutions prevent the rise

of the vested interest and facilitate ‘destructive creativity’ (old one replaced by new one)

▪ What is the implication of inclusive & exclusive institutions about Vietnam? What is the philosophical basis of <Inclusive Institution> theory? Discuss